1. (SBU) Summary: In a July 22 meeting, the Shanghai Customs
Director General Sun Yibiao welcomed the "close relationship"
between Customs and the Consulate over the past three years and
discussed areas for future cooperation. Sun emphasized the
importance of input from the Consulate and the U.S. business
community in improving service. In addition, Sun noted his
continued support of the Container Security Initiative (CSI) and
promised to explore ways to enhance coordination. As part of
the effort to streamline efficiency, Shanghai Customs plans to
expand the pilot program of paperless clearance from exports to
imports. On IPR issues, Sun said that, in accordance with the
May 2007 SED Agreement, Shanghai Customs is sharing information
on counterfeits through the General Administration of China
Customs in Beijing. End Summary.

3. (SBU) Sun thanked the CG for his cooperation and support
over the past three years and noted the strength of the ties
between the two sides. He also welcomed long-term collaboration
and deeper cooperation with the Consulate. The CG noted
Shanghai AmCham's direct dialogue with Shanghai Customs, saying
AmCham has been impressed by the excellent information exchange.
A recent AmCham Shanghai survey concluded that Customs service
was improving, but added that U.S. companies still want China
Customs to make regulations and procedures more transparent, as
well as make the clearance process speedier.

4. (SBU) DG Sun said that Shanghai Customs relies heavily on
the Consulate and the U.S. business community for suggestions on
ways to improve their operations. These suggestions are taken
seriously and implemented when possible. He particularly
welcomed the liaison mechanism with AmCham, which provides an
ongoing dialogue on key customs issues and an official channel
to address new questions and concerns as they arose. Liu added
that Shanghai Customs would welcome more input on specific
requirements from the U.S. business community on how to improve
its operations. Shanghai Customs is willing to provide training
as necessary to the U.S. business community. Companies can also
readily obtain information through the Customs website or by
consulting with customer service representatives. Shanghai
Customs also tries to provide accurate and timely information
through its Chinese and English websites.

Transparency is Paramount
-------------------------

5. (SBU) According to Sun, Shanghai Customs works to be
transparent on the implementation of all its rules, regulations
and procedures. It makes extra effort to communicate with
companies so they know what is expected. It is in Customs own
interest to make sure the relevant rules and regulations are
available to the public through training, websites, and customer
service representatives. In addition, Customs has a "hearing
system" that allows companies to appeal if they feel they have
been unjustly treated. Sun welcomed further input from the
Consulate and the U.S. business community on ways to increase
transparency.

Official Cooperation Welcome Too
--------------------------------

SHANGHAI 00000296 002.2 OF 003

6. (SBU) In a response to the CG's inquiry about concrete ways
the two sides could cooperate, Sun said he favors more programs
such as the Trade and Development Agency-funded training program
on intellectual property rights (IPR) that concluded in July.
Shanghai Customs will look into and elicit ideas on course
content regarding the idea suggested by Beijing China Customs
officials to hold training on trade facilitation. Sun opined
that training and exchange of experiences on security issues, in
particular risk management, would be the best method to promote
trade facilitation. The two issues exist in a delicate balance.
Another possible interest for training is on product
classification. Sun also noted that the Shanghai Customs
College not only trains China Customs officials, but it also
trains Customs officials from around the world and thought it
would be worthwhile to cooperate on the training of these other
officials as well.

Paperless - The Wave of the Future
----------------------------------

7. (SBU) Regarding Shanghai's trial run with a paperless
clearance system, Sun said it was approved by Beijing and was
currently only focused on outbound air and sea freight on a
limited basis. This new system has thus far been successful in
streamlining the clearance system and is now being contemplated
for import clearance as well. (Note: All major ports in the
YRD, including Ningbo, Suzhou, and Zhangjiagang are using the
system. Currently close to 100 percent of all duties and 75
percent of all documents are collected by the paperless, e-Port
system. The trial period for paperless clearance began in
January 2008. End Note.)

8. (SBU) Once Beijing deems the test on paperless clearance for
exports has been successful, it will be expanded to include
imports. In response to a suggestion from ATO Chief Batwin, who
noted that importers will need training on the paperless system
before it is implemented effectively, Sun said that he would
welcome cooperation with the U.S. Consulate on the matter. Sun
believes the paperless import clearance system will be well in
place before the 2010 World Expo in Shanghai. Such systems are
necessary to cope with the 80,000 TEU, worth USD 2.5 billion, of
imports and exports that transit the Port of Shanghai on a daily
basis. Sun said it is impossible to inspect this volume of
goods and noted that the paperless clearance system is a part of
Custom's risk management strategy.

The Two Risks: Companies and Commodities
-----------------------------------------

9. (SBU) The focus of the system is both on companies and
commodities, both of which are classified according to risk.
Companies are divided into three categories according to their
"credibility." Those that are deemed to have the highest degree
of credibility are given a higher degree of "trade
facilitation." These companies must operate under certain
standards and sign agreements that they will uphold all Customs
regulations. Customs then keeps records on all the companies to
ensure they are compliant. For companies with bad records, the
highest degree of scrutiny is given. Customs recognizes that
some companies make honest mistakes and works to rectify those
situations. Also, some commodities are more "risky" and draw a
higher degree of scrutiny. For those commodities that have a
high credibility rating, they merely need to transmit their data
online and pay the customs duty for their goods to be released.
Customs can go to the business and inspect the documents as
necessary.

Container Security Initiative Working Well
------------------------------------------

10. (SBU) CG noted that the U.S. Container Security Initiative
(CSI) is working well and thanked Shanghai Customs for their
cooperation. CSI Deputy Chief Raymond Hinds noted that his
office occasionally comes across an issue on the weekends when
the Shanghai Customs Office is closed. Zhang, who is

SHANGHAI 00000296 003.2 OF 003

responsible for cooperation with CSI, agreed there is good
cooperation on the CSI program between the two sides. He said
there is a system to handle requests on the weekends and
holidays under special circumstances. The CSI bilateral
agreement, however, does not provide for weekend or after hours
inspections on a routine basis. Nonetheless, Sun indicated a
willingness to consider making a more regular channel to deal
with weekend requests. He suggested that the United States make
a written request and said this would have to be cleared in
Beijing.

Cooperation on IPR through Beijing
----------------------------------

11. (SBU) In response to an inquiry about how Shanghai Customs
is implementing the May 2006 SED agreement on sharing of IPR
enforcement information, Sun said that Shanghai is actively
sharing information under the framework. However, the
information is exchanged at the General Administration of China
Customs level in Beijing. In addition, Shanghai Customs shares
IPR enforcement information with other ports with which it has
information exchange programs in place such as Rotterdam. Sun
emphasized that Shanghai Customs continues to be vigilant
against exports and imports of pirated and counterfeit goods.

Comment
-------

12. (SBU) Shanghai Customs' cooperation with the Consulate and
U.S. industry has continued at a rapid clip since the beginning
of the year. Customs has been very responsive to working level
requests from CSI, ATO, and FCS. Shanghai Customs has warmly
hosted several U.S. delegations, including SED Envoy Ambassador
Holmer. Shanghai Customs even completed the US Trade and
Development Agency-sponsored IPR training programming that had
been postponed because of the U.S. filing of the IPR-related WTO
cases. Our collaboration on the Megaport Ports initiative is
also moving along nicely. In addition, AmCham Shanghai
continues to be very pleased with Shanghai Customs's continued
support for their cooperation program and ongoing dialogue.
Although there have been rumors that Sun might transfer to
Beijing, we are confident that our strong cooperation with
Shanghai Customs will continue even if Sun moves on.
JARRETT

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